More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Senators Max Baucus (D-Montana) and Chuck Grassley (R-Iowa) introduced legislation June 14 that would tax as corporations all publicly traded partnerships that directly or indirectly derive income from investment adviser or asset management services.
Baucus, chairman of the Senate Finance Committee, and Grassley, ranking member, hope to clarify an update Congress made to the tax code in 1987 that generally taxes publicly traded partnerships as corporations. However, an exception to that general rule exempts publicly traded partnerships from corporate taxation if they can demonstrate that at least 90% of their income is passive --from dividends, interest, or royalties rather than the provision of services, according to a statement announcing the legislation. But these days, the two Senators argue in the statement, new structuring of investment vehicles may make it possible for partnerships to argue that their income is passive, when it is actually produced by actively providing financial services. The statement notes that private equity firms, for instance, derive most of their income directly or indirectly from investment adviser or asset management services.
"Creative new structures for investment vehicles may blur the lines for the tax treatment of income," said Baucus in the statement. "We must make the law clear and apply the law fairly, or risk the erosion of our corporate tax base. If a publicly traded partnership makes its money by providing financial services, that active business should be taxed as a corporation."
Grassley said, "A hallmark of corporate status is access to the capital markets. It's unfair to allow a publicly traded company to act like a corporation but not pay corporate tax, contrary to the intent of the tax code. We don't have a workable tax code if we don't have structural integrity. If left unaddressed, the tax concerns presented by the public offerings of investment managers, like private equity and hedge fund management firms, could fundamentally erode the corporate tax base. That would leave other individuals and business taxpayers with a greater share of the nation's tax burden."
Baucus and Grassley are also asking for Treasury's views on the issue and what plans Treasury and the IRS have to issue guidance and enforce Congressional intent. The Senators are also seeking input from the SEC.